Medicare Part D Costs $136 billion Less than Estimated

A report released by the Congressional Budget Office and titled "The Budget and Economic Outlook: Fiscal Years 2008 to 2017,” claims that Medicare Part D costs are substantially lower than federal officials estimated they would be.  Why?  The report alleges that it’s free-market forces at work.

And how much lower?  About $136 billion less over the period between 2007 and 2013.

"Medicare’s payments for prescription drugs under Part D are largely based on competitive bids that drug plans submit to provide coverage," the report’s authors write. "The bids submitted for calendar year 2007 are much lower than expected–about 15 percent below the per-capita costs of providing drug coverage.

"In addition, recent information from the Department of Health and Human Services’ Centers for Medicare and Medicaid Services indicates that a larger-than-expected number of the Medicare beneficiaries who are not enrolled in Part D have some other form of drug coverage that is comparable to Part D," the authors continue. "Because CBO expects that many of those beneficiaries will retain their existing coverage rather than enroll in Part D, it has lowered its estimate of the ultimate participation rate from 87 percent to 78 percent of Medicare beneficiaries."

The free market is taking advantage of the so-called “donut hole” — a gap in Part D drug coverage that leaves seniors responsible for the full cost of their medications after they and their respective insurance plans have paid $2,400 in a calendar year, until such time as the drug expenses reach $3,600. After $3,600, Medicare covers expenses again.

What had once been considered a serious flaw – and one that needed immediate closing – is now attributed as the main reason for the $136 billion windfall.  It encourages some seniors to remain with private insurance plans rather than depend on the government.